South Australia has led the way again wrestling with the energy transition ... evident from two Yellow Canary events last week. Here is what happened and what it means for all of us.

Case 1: Little yellow canary

There have been 3 distinct changes to intraday prices happening over the last few years, and these are:

1. daytime prices are softening
2. the evening peak is rising and becoming more volatile
3. overnight prices are rising

This dynamic of changing intraday prices is evident from the chart below which compares the normalised SA spot prices for 2017 and 2020. The overnight prices are now closer to the average than previously. The midday prices are swapping from being above the average price, to sitting below the average. And finally, the evening peak prices are becoming much greater than the average, and persist all the way through to midnight or early hours of the morning.

Each morning at 8:00am we send an automated email to a group of our clients if any forecast price exceeds $300/MWh, which was the case on Tuesday 6 March.

You may well ask, "What is so interesting about that?"

The spot price alert was not for critical afternoon hours, nor was it for the evening peak, it was in fact ... for 4:00am in the morning! "What universe do we live in?", I hear you say.

As it transpired, the forecast high price event disappeared.

Our price forecasting modelling shows it won't be long before the traditional off-peak prices will consistently overtake peak prices. The cheapest time of the day won't be when our head rests on the pillow, but rather when the sun is shining brightly. For many businesses who geared their operations around cheap overnight power, will soon re-engineer their operations to capture lower daytime prices. Of course, this assumes the Retail market passes through an appropriate price signal using a better constructed tariff (here is hoping).

The chart below shows the number of times since January 2017, when the off-peak average monthly price exceeded the peak average monthly price for the same month. The year of 2020 had more cases than ever before and by the end of March, Vic and SA are both expected to match 2020 levels with 9-months to go. Historically, Tasmania has many of these cases due to a much flatter price profile during the day.

This is our Little Yellow Canary event demonstrating the shift in intraday prices will cause volatility and step changes in prices that differ from history. SA is providing the lessons and warning signs. Now let's move onto the Big Canary event ...

Case 2: Big yellow canary

The next Yellow Canary event occurred on Friday 12 March following the lowest February average price in SA for 18-years.

The passive looking black swan gliding over the water ... stirred and struck.

Spot prices took-off, reaching the maximum half hour spot price of $14,348/MWh. This event did not occur during a hot afternoon; nor at the new critical peak period of 6:00pm, although it did start a little later just before 6:30pm local time and then lasted until 1:30am the next day.  Shown below are the half hour prices during Friday and Saturday where the maximum price occurred at half hour ending 8:30pm local time (8:00pm EST).

As is the common practice for extreme risk events to occur, many factors needed to align, and this is what happened in this case:

1. Heywood interconnector planned outage reduced transfer capacity from Vic
2. Solar generation retired for the day
3. Wind levels were calm and expected to drop further through the night
4. A fire at the Torrens Island substation, tripped Barker Inlet gas plant
5. Constraints were imposed on Lake Bonney 2 and 3 wind farm
6. Other generation constraints and availability issues

The chart below shows the generation mix across the two days of Friday and Saturday. The contribution from wind was extremely low bottoming out at 21MW for the half hour ending 9:00pm, just after the big spike. You can click on the legend on the chart to turn on, or off fuel types to help your understanding of the dynamics.

By turning off all fuel types in the chart except for Battery, you can see that the batteries were dispatched on the first spike, but by the time the later and larger spikes eventuated, their capacity was reduced. The lesson here is that the art and science of dispatching a storage asset with a finite amount of energy creates risks and potentially sub-optimal results due to the vagaries of the uncertainty of future prices. This challenge is further heightened when co-optimising energy and FCAS markets.

More detail of the day's events can be found on WattClarity.

Conclusion

The energy market is transitioning at a rapid rate, and not without its challenges. Our Yellow Canary events in SA from last week are:

1. the timing of extreme spot prices will not follow history due to the impact of intermittent renewable generation, and retirement of carbon intensive generation
2. structural changes are occurring to the intraday prices, and will continue to do so
3. the deployment of shallow storage assets, whilst they have their strength to respond fast, may not optimise the revenue streams due to the inherent difficulty of not knowing what future prices will be.

There are warning signs and leading experiences, so hang on tight for the ride, and get prepared to be agile and ready to change.